There’s always a lit­tle con­fu­sion when it comes to LLC tax­a­tion. The IRS doesn’t have LLC tax­a­tion. Instead, it lets you choose how Mr. LLC will be taxed.

He can be taxed as a sole pro­pri­etor, part­ner­ship, an S cor­po­ra­tion, or a C cor­po­ra­tion. So if you’re the only owner of Mr. LLC you can choose to be taxed like a sole pro­pri­etor or an S cor­po­ra­tion. If you have mul­ti­ple mem­bers, you can choose to have Mr. LLC taxed as a part­ner­ship or an S Cor­po­ra­tion and even a C cor­po­ra­tion (it rarely makes sense to be taxed as a C cor­po­ra­tion). You’ll need to make sure that your oper­at­ing agree­ment includes pro­vi­sions that address cer­tain tax issues depend­ing on what tax selec­tion you make.

There are also state tax reg­u­la­tions and social secu­rity taxes to take into con­sid­er­a­tion. You should talk with your accoun­tant about your tax elec­tion. The choice you make may save you thou­sands of dol­lars or cost you thou­sands of dol­lars. For exam­ple, if you earn income from your cap­i­tal invest­ments or from the work of your employ­ees, then you might want to con­sider choos­ing S cor­po­ra­tion taxation.